Australia is privately wealthy and publicly poor.

Our individual wealth puts us among the top countries in the world, measured either by the median (3rd) or average (5^th). A disproportionate amount of it is tied up in our housing, which is why that wealth is so unevenly distributed.

By contrast, our national income, for governments to spend on their programmes, makes us one of the poorest countries in the OECD. Only 29% of our GDP is collected as tax. It’s in the mid-30% in most of Europe and well over 40% in some Scandinavian countries.

As a result, our upper and middle classes have stonking wealth in property, but our governments struggle to properly fund the social programmes of health, education, and NDIS, let alone address poverty and homelessness. The government can’t even afford to build homes in a housing crisis, so it has to concoct an investment scheme with marginal profits to fund one. We’re broke (and the right flank wants to make us more broke).

I have one clear, simple solution: put the GST on ALL house sales.

Before you think me barking mad, consider this. Property is the source of our wealth and success. It is the biggest sector of the GDP and our biggest employer. And yet in housing we tax every step of the process but not the product. It’s opposite in everything else, which gets tax rebates in process (e.g., food, white goods, manufacturing, etc.), but the end product is always taxed (but not enough in the case of mining, but that’s another story).

And it’s not that big a step. All newly built houses already attract the GST, which means they are less affordable than existing houses. Yet the federal government insists on keeping negative gearing on new builds to incentivise investors over first-time home buyers. That stupidity is a story for another economist. New houses are taxed at 10%, but there are a few developer-worn loopholes.

Stamp duty, levied on the rest, is a tax by any other name. Currently it varies from state to state, from 1.25% up to 5.5%, depending upon the house value. Abolish stamp duty, and levy 10% GST on every house at the point of sale. That will raise the revenue we need for a real social housing programme and all the infrastructure as well. Hell will be yelled by the chicken littles of the right.

The downside would be a drop in house ‘returns’ for recent purchasers, including investors. But not necessarily prices. So, some cautious and discrete methods may be needed. Maybe a gradual introduction, a carve-out for first-home buyers (but not a second house), and exceptions for recent purchases or emergency sales. Easily done, and all things economists know better than me.

But the upside of a GST on housing is phenomenal. Even in divorce and death.

First home buyers

The GST is paid by the purchaser and foregone by the seller. If the GST is universal, discretion can be given to reduce the GST for first home buyers, who are eligible to buy one home (with a lower mortgage rate). A discounted GST for them would see sellers clamouring to find a renter to sell to, not an investor. The market works for ownership, not property.

To ensure it is genuinely a shelter for first-time home buyers, they would need to live in that home full time. But the owners are on their way up the property ladder, free to upgrade to better or buy a second home, but on the market, at market rates, paying full GST.

Divorce

Each person in a marriage, or partnership, can be a first-home buyer, so a household can have a second house (for holidays or rental, subject to conditions). Each partner would keep their initial house, or its replacement, to ensure that each person has access to a home in the event of divorce. Or there can be clear arrangements when properties are combined prior to the divorce.

Single women over 55 in housing stress is our biggest growth in homelessness. A first-home buyer scheme, underpinned by the GST, is a fence at the top of the cliff, not an ambulance (off to some homeless hospital) at the bottom.

Death

The 10% GST is levied on the market value or sale or transfer price of the house, whichever is the higher, so the GST is properly paid, not circumvented. This avoids the dodgy deal of, say, a house sold cheaply or passed to siblings or children at the death of an owner.

Yes, it’s a form of death duty, but we’re immoral if we don’t act like almost every civilised country and levy fees on accumulated wealth to help run society. As the Scots say, “there nay pockets in a shroud, Laddy."

We have a GST. We’ll never have a government with the spine to raise it to the levels of the sensible world (with the lower income tax we want), so let’s start adding GST to everything, starting with housing (before moving on to private education; thanks, Jane Caro, Elizabeth Farrelly, and Save Our Schools).

Cross-Sections are Friday musings from Tone Wheeler, formerly of Tone on Tuesday. Amateurs draw plans; professionals draw sections – never at cross purposes.

Tone Wheeler

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